IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_2830.html
   My bibliography  Save this paper

Is Norway's Bird-in-Hand Stabilization Fund Prudent Enough? Fiscal Reactions to Hydrocarbon Windfalls and Graying Populations

Author

Listed:
  • Torfinn Harding
  • Frederick Van der Ploeg

Abstract

We estimate fiscal reaction functions for non-hydrocarbon tax and public spending shares of national income and for debt management strategies adopted by Norway and compare these with rules that would prevail under the permanent income hypothesis and bird-in-hand rule. We conclude that the fiscal reaction functions adopted by Norway have to some extent been forward-looking when it comes to the rising pension bill, but backward-looking when it comes to hydrocarbon revenues. Still, our results suggest that the imminent costs of a rapidly graying population are not sufficiently taken into account in the current fiscal rules, since Norway is on a trajectory of turning a current net asset-GDP-ratio close to one into a net debt-GDP-ratio of two in 2060. Something needs to give in the holy trinity: either the rules of the Stabilization fund have to be tightened, or civil servant salaries, benefits and pensions will no longer have to be fully indexed to market wages, or the retirement age has to be increased.

Suggested Citation

  • Torfinn Harding & Frederick Van der Ploeg, 2009. "Is Norway's Bird-in-Hand Stabilization Fund Prudent Enough? Fiscal Reactions to Hydrocarbon Windfalls and Graying Populations," CESifo Working Paper Series 2830, CESifo.
    • Handle: RePEc:ces:ceswps:_2830
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp2830.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Frederick van der Ploeg & Anthony J. Venables, 2011. "Harnessing Windfall Revenues: Optimal Policies for Resource‐Rich Developing Economies," Economic Journal, Royal Economic Society, vol. 121(551), pages 1-30, March.
    2. Brunnschweiler, Christa N. & Bulte, Erwin H., 2008. "The resource curse revisited and revised: A tale of paradoxes and red herrings," Journal of Environmental Economics and Management, Elsevier, vol. 55(3), pages 248-264, May.
    3. Sibley, David S., 1975. "Permanent and transitory income effects in a model of optimal consumption with wage income uncertainty," Journal of Economic Theory, Elsevier, vol. 11(1), pages 68-82, August.
    4. van der Ploeg, Frederick, 2010. "Aggressive oil extraction and precautionary saving: Coping with volatility," Journal of Public Economics, Elsevier, vol. 94(5-6), pages 421-433, June.
    5. Paul Collier & Anthony Venables & Rick Van der Ploeg & Michael Spence, 2009. "Managing Resource Revenues in Developing," OxCarre Working Papers 015, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    6. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-971, October.
    7. Stephen P. Zeldes, 1989. "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(2), pages 275-298.
    8. Mr. Jan-Peter Olters, 2007. "Old Curses, New Approaches? Fiscal Benchmarks for Oil-Producing Countries in Sub-Saharan Africa," IMF Working Papers 2007/107, International Monetary Fund.
    9. Laeven, Luc & Chhaochharia, Vidhi, 2008. "Sovereign Wealth Funds: Their Investment Strategies and Performance," CEPR Discussion Papers 6959, C.E.P.R. Discussion Papers.
    10. James D. Hamilton, 2009. "Understanding Crude Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 179-206.
    11. Mr. H. Takizawa & Mr. E. H. Gardner & Mr. Kenichi Ueda, 2004. "Are Developing Countries Better Off Spending Their Oil Wealth Upfront?," IMF Working Papers 2004/141, International Monetary Fund.
    12. Mr. Paulo A Medas & Ms. Daria V Zakharova, 2009. "A Primeron Fiscal Analysis in Oil-Producing Countries," IMF Working Papers 2009/056, International Monetary Fund.
    13. Mr. Jan-Peter Olters & Mr. Daniel Leigh, 2006. "Natural-Resource Depletion, Habit Formation, and Sustainable Fiscal Policy: Lessons from Gabon," IMF Working Papers 2006/193, International Monetary Fund.
    14. Mr. John Thornton & Fabian Bornhorst & Mr. Sanjeev Gupta, 2008. "Natural Resource Endowments, Governance, and the Domestic Revenue Effort: Evidence from a Panel of Countries," IMF Working Papers 2008/170, International Monetary Fund.
    15. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 443-478.
    16. Erling Holmøy & Kyrre Stensnes, 2008. "Will the Norwegian pension reform reach its goals? An integrated micro-macro assessment," Discussion Papers 557, Statistics Norway, Research Department.
    17. Mr. Daniel Leigh & Mr. Etibar Jafarov, 2007. "Alternative Fiscal Rules for Norway," IMF Working Papers 2007/241, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Darko JUS & Christian BEERMANN & Markus ZIMMER, 2010. "An Empirical Assessment of the Effectiveness of Oil Taxes," EcoMod2010 259600084, EcoMod.
    2. Issouf Samaké & Ms. Priscilla S Muthoora & Mr. Bruno Versailles, 2013. "Fiscal Sustainability, Public Investment, and Growth in Natural Resource-Rich, Low-Income Countries: The Case of Cameroon," IMF Working Papers 2013/144, International Monetary Fund.
    3. van der Ploeg, Frederick, 2010. "Aggressive oil extraction and precautionary saving: Coping with volatility," Journal of Public Economics, Elsevier, vol. 94(5-6), pages 421-433, June.
    4. Śmiech, Sławomir & Papież, Monika & Rubaszek, Michał & Snarska, Małgorzata, 2021. "The role of oil price uncertainty shocks on oil-exporting countries," Energy Economics, Elsevier, vol. 93(C).
    5. Ouoba, Youmanli, 2020. "Natural resources fund types and capital accumulation: A comparative analysis," Resources Policy, Elsevier, vol. 66(C).
    6. Iacono, Roberto, 2017. "A comparison of fiscal rules for resource-rich economies," Economic Analysis and Policy, Elsevier, vol. 55(C), pages 179-193.
    7. El Anshasy, Amany A. & Bradley, Michael D., 2012. "Oil prices and the fiscal policy response in oil-exporting countries," Journal of Policy Modeling, Elsevier, vol. 34(5), pages 605-620.
    8. Mahadeva Lavan, 2014. "Why does natural resource abundance not always lead to better outcomes? Limited financial development versus political impatience," The B.E. Journal of Macroeconomics, De Gruyter, vol. 14(1), pages 341-377, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Torfinn Harding & Frederick Ploeg, 2013. "Official forecasts and management of oil windfalls," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(5), pages 827-866, October.
    2. Paul Collier & Anthony Venables & Rick Van der Ploeg & Michael Spence, 2009. "Managing Resource Revenues in Developing," OxCarre Working Papers 015, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    3. van der Ploeg, Frederick, 2010. "Aggressive oil extraction and precautionary saving: Coping with volatility," Journal of Public Economics, Elsevier, vol. 94(5-6), pages 421-433, June.
    4. Segal, Paul, 2012. "How to spend it: Resource wealth and the distribution of resource rents," Energy Policy, Elsevier, vol. 51(C), pages 340-348.
    5. Stuart Landon & Constance Smith, 2015. "Rule-Based Resource Revenue Stabilization Funds: A Welfare Comparison," The Energy Journal, , vol. 36(2), pages 117-144, April.
    6. Malova, Aleksandra & van der Ploeg, Frederick, 2017. "Consequences of lower oil prices and stranded assets for Russia's sustainable fiscal stance," Energy Policy, Elsevier, vol. 105(C), pages 27-40.
    7. Wills, Samuel, 2018. "Leave the volatility fund alone: Principles for managing oil wealth," Journal of Macroeconomics, Elsevier, vol. 55(C), pages 332-352.
    8. Amin Karimu & George Adu & George Marbuah & Justice Tei Mensah & Franklin Amuakwa-Mensah, 2017. "Natural Resource Revenues and Public Investment in Resource-rich Economies in Sub-Saharan Africa," Review of Development Economics, Wiley Blackwell, vol. 21(4), pages 107-130, November.
    9. Cherif, Reda & Hasanov, Fuad, 2013. "Oil Exporters’ Dilemma: How Much to Save and How Much to Invest," World Development, Elsevier, vol. 52(C), pages 120-131.
    10. Carpantier, J.-F. & Vermeulen, W.N., 2018. "Emergence of sovereign wealth funds," Journal of Commodity Markets, Elsevier, vol. 11(C), pages 1-21.
    11. Tsani, Stella, 2013. "Natural resources, governance and institutional quality: The role of resource funds," Resources Policy, Elsevier, vol. 38(2), pages 181-195.
    12. Frederick van der Ploeg & Anthony J. Venables, 2011. "Harnessing Windfall Revenues: Optimal Policies for Resource‐Rich Developing Economies," Economic Journal, Royal Economic Society, vol. 121(551), pages 1-30, March.
    13. Melina, Giovanni & Yang, Shu-Chun S. & Zanna, Luis-Felipe, 2016. "Debt sustainability, public investment, and natural resources in developing countries: The DIGNAR model," Economic Modelling, Elsevier, vol. 52(PB), pages 630-649.
    14. Frederick van der Ploeg & Anthony J. Venables, 2012. "Natural Resource Wealth: The Challenge of Managing a Windfall," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 315-337, July.
    15. Iacono, Roberto, 2017. "A comparison of fiscal rules for resource-rich economies," Economic Analysis and Policy, Elsevier, vol. 55(C), pages 179-193.
    16. Wojciech Maliszewski, 2009. "Fiscal Policy Rules for Oil-Producing Countries: A Welfare-Based Assessment," IMF Working Papers 2009/126, International Monetary Fund.
    17. Lugilde, Alba & Bande, Roberto & Riveiro, Dolores, 2017. "Precautionary Saving: a review of the theory and the evidence," MPRA Paper 77511, University Library of Munich, Germany.
    18. Ton S van den Bremer & Frederick van der Ploeg, 2013. "Managing and Harnessing Volatile Oil Windfalls," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(1), pages 130-167, April.
    19. Frederick Ploeg, 2010. "Political economy of prudent budgetary policy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(3), pages 295-314, June.

    More about this item

    Keywords

    permanent income hypothesis; oil windfall; sovereign wealth fund; graying population; pension bill; unsustainable public finances;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_2830. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.